QOCS and Set-off – A commentary on Ho v Adelekun [2021] UKSC 43

Summary

CPR 44.14 enables the set-off of costs awarded to an unsuccessful defendant against the damages and interest awarded to a claimant. Previously, the Court of Appeal in Howe v Motor Insurers Bureau [2017] EWCA Civ 932 had held that set off under CPR 44.14 of a defendant’s costs may also be made against costs awarded to a claimant.

The decision in Howe was (reluctantly) followed by the Court of Appeal in Ho v Adelekun [2020] EWCA Civ 517, because it considered it was bound by the decision in Howe. However, the Court of Appeal granted permission to appeal to the Supreme Court (“SC”) on the question of the availability of set-off. 

In allowing the Claimant’s appeal the SC reversed the Court of Appeal’s decision and reiterated the limits of set-off in cases which are governed by qualified one way costs shifting (“QOCS”). 

The Facts

In 2012 the Claimant was injured in a road traffic accident. The Claimant alleged that the Defendant was liable for her injury. Proceedings were issued in 2015 after the Defendant denied liability. In 2017 the Defendant made a part 36 offer in the sum of £30,000. The Claimant accepted the offer, but a dispute arose between the parties, as to the basis of the assessment of costs. The Defendant argued that the costs were limited to fixed costs recoverable in accordance with CPR 45 Section IIIA, whereas the Claimant argued that she was entitled to recovery of her costs on the standard basis. After two appeals, the Court of Appeal held that only fixed recoverable costs were payable. 

At the conclusion of the assessment, the Defendant asked the Court to direct that she could set off her obligation to pay the Claimant’s fixed recoverable costs against the much larger costs liability owed by the Claimant relating to the dispute concerning the basis of assessment of the Claimant’s costs. Since the claim was compromised by way of an acceptance of the part 36 offer, it was agreed that there was no ‘order for damages’ made within the meaning of QOCS from which the Defendant could set off her costs.

The Court of Appeal concluded that it was bound by its earlier decision in Howe v Motor Insurers Bureau (No2) meaning it was appropriate to allow a set-off of costs as against costs. In doing so, the Court of Appeal gave permission to appeal to the SC on the issue of the availability of set-off.

The mechanics of qualified one-way costs shifting. Particularly, whether QOCS constrains in any way the defendant’s liberty to seek, or the court’s discretionary power to permit, a set-off between costs orders made in favour of opposing parties.

The issue before the SC: 

Held: 

• Generally, defendants’ costs may be enforced up to an amount equivalent to the aggregate of orders for damages and interest in favour of a claimant. This is a form of monetary cap. (Para 5)
• The QOCS regime does not in terms prevent a trial judge from making a single, one way, costs order which is the result of adjusting in the judge’s mind the appropriate costs order in the light of the parties’ respective successes or failures on different issues in the litigation. This is because QOCS does not seek to constrain the court from making costs orders, but merely the use which defendants can make of costs orders made in their favour. (para 32)
• The QOCS regime is mechanical rather than discretionary and so the phrase “without the permission of the court” in r 44.14 (1) did not preserve a general discretion to allow a defendant costs enforcement beyond that which is expressly provided for in r44.16. (para 33)
• Rule 44.14 does not in terms operate as a total ban on set-off of opposing costs orders. It just imposes a monetary cap. (para 33)
• QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant, i.e. about the use which the defendant can make of them. The defendant can recover the costs ordered, by any means available, including set-off against an opposing costs order, but only up to the monetary amount of the claimant’s orders for damages and interest. (In this case such an order was not made, so it was construed as zero). (para 37)
• The well-established jurisdiction to direct set-off of costs against costs under rule 44.12 is not displaced by the QOCS scheme, provided that there is an order for damages or interest and that the headroom provided by that order has not been exhausted by other means of enforcement. (para 43)
• The amount in money terms of a costs order in a defendant’s favour is the gross amount of that order, not the net amount arrived at following a set-off of costs against costs. (para 43)
• Any perceived unfairness in how QOCS operates in an individual case is part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs and to lift from defendants’ insurers the burden of paying success fees and ATE premiums. (para 44) 

For an example of the way in which CPR 44.14(1) operates see para 38 and 39 of the judgment. 

Appeal allowed. In the present case no award of damages was made to the Claimant and so the aggregate amount in money terms of any awards for damages and interest in the Claimant’s favour was zero, meaning that to allow the costs order in the Defendant’s favour to be off set against the costs order made in the Claimant’s favour would be contrary to the QOCS rule.

Analysis

By imposing a monetary cap beyond which enforcement is not possible, a defendant is put in a position whereby it must keep a running account of all costs recoveries which it makes against a claimant who is afforded QOCS protection and cease enforcement once that cap has been reached. 

The reasoning of their Lordships for doing this, being the inequality of arms between the parties in situations where the claimant is a mere lay person whereas the defendant is likely to be a big insurance company, is completely justified given the wealth of resources generally available to defendants who are backed by large insurance companies. 

As the SC determined, any perceived unfairness in individual cases is part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs for a sum over and above the amount set out in any ‘order for damages and interest’ made by the court and to lift from defendants’ insurers the burden of paying success fees and ATE premiums that were previously payable prior to the Jackson reforms being implemented in 2013. Absent this protection, it may well deter well founded claims from being brought by claimants who are too afraid of being saddled with payment of their own legal bill even in successful cases as a result of costs orders made in favour of a defendant being set off against a costs order or orders made in their favour.

Undoubtedly, there is another side to the argument as there always is. Although the decision offers protection to claimants, it does increase the chances of a litigant bringing proceedings which have limited prospects of success in the knowledge that they are essentially protected from payment of costs in the event that the claim is unsuccessful as a result of the operation of QOCS. This concern is, however, to an extent ameliorated by the existence of r44.15 and r44.16.